Drip feeding is a low-risk investment method where small payments are consistently disbursed to a firm or business in exchange for stock. It is preferred during periods of market unpredictability and for investors with a steady income but little initial capital. Drip feed investments benefit small growing businesses with growth potential, but may not offer rapid growth potential or excess liquidity flexibility. The average price paid for a stock usually increases with each successive investment.
In investing, drip feeding is a method in which the investor provides the firm or business with which he invests several small payments that are consistently disbursed, usually in exchange for stock in the company. This method of investing is in contrast to the more common method which involves an upfront payment of a large investment, called the lump sum investment method. Usually, drip feed investment is considered lower risk than a lump sum investment because it does not require committing a large amount of money in the early stages of a project. Drip feed investing is used in both the public stock market and in venture capital operations. The types of drip investing methods include dollar cost averaging and value averaging.
This type of investment has a lower risk, so it generally produces a lower percentage of return than a higher risk all-in investment. Because it is inherently a stable investment method, drip feeding is a preferred way to invest when the stock market experiences periods of unpredictability. Drip feed investing is also a popular investment option for investors with a steady stream of income to invest but too little initial capital for a lump sum investment. Investors receiving structured arrangements can start investing earlier by making small investment contributions as money becomes available for investment.
Companies looking for investors can benefit from receiving trickle investment capital because it provides a reliable source of stable capital that can be used to cover small losses or to expand the company in small steps. Drip feed investments are usually used to grow existing small businesses with growth potential. Small growing businesses often operate with little cash surplus and are most affected by small incremental investments. This type of investment can help a growing company make small upfronts, but it usually doesn’t offer the potential for rapid growth or the excess liquidity flexibility afforded by available upfront capital investments.
When drip investing is used in the stock market, the investor buys shares in a company, delivering the investments in small transactions. While this method of investing puts less upfront money at risk, it usually increases the average price paid for a stock, called the average price, because the stock’s price usually increases with each successive investment. The average price is calculated by dividing the total price paid for all shares by the total number of shares bought or sold in a given period of time.
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